S&P 500 vs. Multifamily Real Estate Investment: Which is Best?

by | Mar 16, 2024

Investment: Which is Best?

Professionals will ask themselves the following question when it comes to mapping out their financial strategy: Should I invest my hard-earned money in the S&P 500 or real estate? 

These are two of the most common investment routes people tend to gravitate toward, but while the Standard & Poor 500 (S&P 500) Index is a great way to dip your toes in the stock market with a diverse and relatively-safe portfolio, you’ll achieve even more financial security—and a higher promise of return—with multifamily real estate investment

Okay, we might be a little biased, but there are plenty of reasons why a multifamily real estate fund makes the most sense for your financial needs—especially if you’re looking for low risk, low involvement, and high return. 


What is an S&P 500 Index fund?

An S&P 500 Index fund is a representation of 500 large companies listed on the U.S. stock exchanges. A type of mutual fund or exchange-traded fund (ETF) designed to follow the index’s performance, an S&P 500 Index fund uses money collected from its investors to purchase stocks within the index, all with the aim of maximal returns for everyone involved.

An S&P 500 Index fund is all about passive investment. Instead of trying to outperform the market, these funds mirror the S&P 500’s performance, which means success is directly tied to that of the index. When the S&P 500’s value goes up, so should the value of your index fund.

Getting involved in an S&P 500 fund feels like a no-brainer if you’re looking for lower fees, diversification, and passive involvement. However, it also comes with its fair share of negatives—and unfortunately, these can quickly outweigh the pros.

The downside of S&P 500 Index funds

Here are some of the negatives that tend to accompany S&P 500 fund investment:

No downside protection

Remember: When the S&P 500 Index goes up, so does your index fund. Pretty sweet guarantee, right?

Sure—until you realize the index fund offers you absolutely no protection for the opposite scenario. If it crashes, you’re on your own; your best bet is to pull your money out as early as possible, or keep it in and hope the value shoots back up sooner rather than later. 

Lack of control

Another downside to these sorts of index funds is the complete lack of control you have as an investor. If a company within the index is performing poorly, you won’t be able to remove it from your portfolio. 

Limited potential for above-market returns

If you’re looking for above-average market returns, you’ve come to the wrong place. Remember: the S&P 500 Index fund mimics the S&P 500 Index, which means market outperformance is basically impossible for involved investors.  

What is a real estate fund?

While S&P 500 Index investment is risky, earns low-to-medium return, and leaves you with your hands tied as an investor, a real estate fund is time-saving and risk-mitigating: a unique opportunity to build your future wealth without sacrificing all of your free time today. 

Real estate funds pool capital to buy and manage multifamily properties, offering investors a way to diversify their portfolios and generate passive income. Investors will begin by buying shares or units in the fund; the raised capital is then used to acquire, manage, and/or sell multifamily properties, with generated income traveling right back to the investors’ pockets at the end of the financial journey. Of course, a real estate fund still comes with its fair share of downsides, but its promise of return is a lot more tangible than the S&P 500 Index fund’s. 

The benefits of investing in real estate over stocks

You might be wondering to yourself, if both come with potential cons, how is the passive investment process of the S&P 500 Index fund any different from a real estate fund? While both approaches allow investors to be hands-off, this lack of involvement isn’t as much of a potential handicap in the real estate world as it is for stocks.

You’ll receive regular income throughout the investment process

While your S&P 500 fund money is locked in until you decide to sell, real estate fund investment offers you a unique opportunity to earn regular income. Tenant rent provides a consistent cash flow, which can be distributed among investors at any time. 

Appreciation is more of a guarantee

While an S&P 500 Index fund is meant to appreciate, these returns tend to be quite conservative, as they remain consistent with the index’s incremental growth. On the other hand, real estate appreciation is more likely to lead to significant capital gains, particularly when properties are sold. 

Tax advantages

Another benefit that comes with real estate but won’t be found in the stock market? Tax advantages! From depreciation deductions and cash-out refinancing to the 1031 exchange system and self-directed IRAs, a real estate fund’s various tax advantages render this investment route even more promising. 

You may not have control, but your fund manager does

An S&P 500 Index investor will enjoy no control over their fund. But while real estate investors might not have direct say in how their fund operates, their manager certainly does. 

The fund manager has the ability to influence the performance of the investment by making improvements to the property, increasing rents, or managing expenses more efficiently. So, as long as you can trust your fund manager, you can trust that your fund will earn you the highest returns possible, pivoting wherever needed to ensure the end goal of high returns is always achieved. 

Getting involved in a real estate fund 

Are you ready to get involved in a real estate fund? To learn more about Leapfrog Funds and how our investment initiatives help you achieve your dreams of financial success and freedom, reach out to us today!

Continuing the conversation on value-add strategy

Value-add strategies can offer attractive opportunities for real estate funds, especially if you’re an investor looking for a balanced risk level, high-return investment designed to adapt.

To ensure you understand how value-add strategy brings you benefit as an investor, contact us today.

Brenda Jones

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